[Title] Case of Enforcement Objection Dispute between XX Commercial Management Co., Ltd. and Third Parties Including He Mou and XX Ocean Co., Ltd.

[Keywords] Third-party objection to enforcement; substantive rights; priority of payment; exclusion from enforcement

【Key Points of the Ruling】In an action brought by a third party challenging an enforcement proceeding, the court examines whether the third party holds substantive rights in the property subject to enforcement and whether such rights can preclude enforcement. In this case, the court is examining whether XX Commercial Management Company enjoys civil rights sufficient to preclude compulsory enforcement against the property involved—the property at issue in the litigation. Therefore, the court must first ascertain the ownership status of the property subject to enforcement and investigate why XX Commercial Management Company, despite successfully bidding for the property, failed to pay the full auction price and did not obtain the official confirmation ruling on the auction outcome, thereby determining whether it actually holds ownership of the property in question. Furthermore, if XX Commercial Management Company holds a mortgage or other similar security interest in the property, the court must also determine whether such rights can serve as a basis to block compulsory enforcement. The two-level courts reached a highly consistent conclusion on these issues: namely, that without obtaining the official confirmation ruling on the auction outcome, the company cannot acquire ownership of the auctioned property and thus cannot prevent enforcement proceedings from proceeding.

【Basic Facts of the Case】XX Commercial Management Co., Ltd. filed a third-party objection to enforcement action with the Shenyang Intermediate People’s Court, requesting that the enforcement against the property involved in the case be halted. This case arose because He, as a creditor of XX Fishery Co., applied for enforcement and had the property in question seized. XX Commercial Management Co., Ltd., claiming that it was the rightful owner of the property, filed an objection to enforcement, which was dismissed. Subsequently, XX Commercial Management Co., Ltd. filed this third-party objection to enforcement action. On June 26, 2001, XX Housing Development Co., Ltd. (a third party) entered into a transfer contract with XX Fishery Co., under which XX Fishery Co. agreed to purchase housing developed by XX Housing Development Co., Ltd., with a total transfer price of 76 million yuan. After the contract was signed, XX Ocean Co. actually took possession of, used, and disposed of the property, and—with the cooperation of XX Housing Development Co., Ltd.—mortgaged the property to a bank as security for another party’s loan. Due to issues related to the transfer and mortgage security, the property became involved in multiple lawsuits and was subject to numerous court judgments, making the litigation situation highly complex. XX Management Co., Ltd. acquired its claim against XX Ocean Co. by taking over the bank’s debt rights, thereby also obtaining the mortgage right on the property in question. As a creditor, it applied for the auction of the property during the enforcement proceedings and simultaneously participated in the auction as a bidder. In November 2011, XX Management Co., Ltd. successfully bid at the auction and obtained the Auction Completion Confirmation. However, after using its original claim to offset part of the auction payment, it failed to pay the remaining balance for more than a year. Later, citing the ongoing litigation involving the property as the reason, it refused to pay the remaining auction funds. Consequently, the enforcement court did not serve it with the Auction Completion Ruling. In July 2015, He acquired the claim against XX Fishery Co. by purchasing the debt rights and subsequently applied for a seizure of the property involved in the case. XX Management Co., Ltd. filed an objection to enforcement, arguing that it had acquired ownership and mortgage rights over the property through the auction and thus should be exempted from enforcement. The first-instance court dismissed XX Management Co., Ltd.’s claim, prompting the company to file an appeal. The second-instance court upheld the original judgment.

【Judgment】 The Shenyang Intermediate People’s Court ruled: Dismiss the claim filed by XX Commercial Management Company. The Liaoning Provincial Higher People’s Court ruled: Dismiss the appeal and uphold the original judgment.

【Reasoning of the Court】 Both levels of people’s courts held that the central issue in this case is whether XX Commercial Management Company enjoys substantive rights sufficient to preclude enforcement against the property in question. After a comprehensive review of the property’s ownership status and the litigation involved, both courts concluded that, since XX Commercial Management Company failed to pay the full auction price and thus did not obtain the auction adjudication certificate, it does not hold ownership of the property and therefore cannot obstruct the enforcement proceedings. Moreover, the mortgage right is merely a priority claim for repayment and does not affect the court’s compulsory enforcement.

[Relevant Statutes] Article 28 of the Property Law of the People’s Republic of China; Articles 23, 24, and Paragraph 2 of Article 29 of the Supreme People’s Court’s Provisions on Civil Enforcement Auctions and Sales of Property by People’s Courts.

[Lawyer’s Perspective] The central issue in an objection lawsuit filed by a third party against enforcement proceedings is whether the third party holds rights sufficient to preclude enforcement against the subject matter of enforcement. Generally, the substantive rights that can preclude enforcement include ownership, security interests, expectancy rights of consumers in property, and expectancy rights of bona fide purchasers without fault. To determine whether a third party possesses any of these rights, it is also necessary to examine the manner and procedures through which the third party acquired the relevant rights, in order to confirm whether such rights were indeed obtained. In this case, the issue at stake concerns the ownership of the property involved: since the full auction price was not paid within the prescribed time limit following the court’s compulsory auction procedure, the enforcing court was not authorized to issue a deed of sale confirming the successful bidder’s acquisition of the property. Under the law, the deed of sale issued by the court after a successful auction serves as the legal document establishing ownership of the auctioned property. Therefore, in the absence of such a deed of sale, ownership cannot be transferred, and the enforcing court is entitled to re-auction the property.